Colombia Sells $557 Million of Peso Bonds in Overseas Markets

Sept. 14 (Bloomberg) -- Colombia sold 1 trillion pesos
($557 million) of peso-linked bonds in overseas markets to take
advantage of demand for emerging-market assets after the Federal
Reserve took measures to lower benchmark U.S. yields.

The government sold the securities due 2023, known as
Global TES, to yield 4.5 percent, the Finance Ministry said in a
statement. Colombia last sold Global TES in July 2010, when it
offered more of its securities due in April 2021.

“This is an opportune time to tap markets when interest
rates are at such low levels,” said Nader Nazmi, a Latin
America economist at BNP Paribas SA in New York. “There is
interest in countries that tell a good story and Colombia is one
of those countries.”

Global markets are rallying after the Fed announced
yesterday its third round of quantitative easing to bolster
growth in the world’s biggest economy. Yields on Colombia’s
international peso-linked bonds due 2021 have fallen 70 basis
points, or 0.7 percentage point, this year to 4.45 percent,
according to data compiled by Bloomberg.

Yields on the securities fell to 4.15 percent yesterday,
within six basis points of a record low, before surging as
bondholders braced for the additional supply from today’s sale.

The peso closed little changed at 1,793.78 per U.S. dollar
after earlier touching 1,786.43, the strongest intraday level
since Aug. 8.

Colombia Finance Minister Mauricio Cardenas said yesterday
that policy makers should step up dollar purchases to slow peso
gains and protect exporters after the Fed unveiled its stimulus.

Funds Abroad

Funds from today’s overseas sale will kept abroad, said
Public Credit Director Maria Fernanda Suarez. “Under no
circumstances will we bring those funds” into Colombia, she
said in a phone interview.

The peso has rallied 8.1 percent this year, the best
performance among the six most-traded Latin American
counterparts against the U.S. dollar after the Chilean and
Mexican currencies.

While transactions in the peso-linked securities are
conducted in dollars, principal and interest payments are
determined by peso fluctuations against the U.S. currency.

Bank of America Merrill Lynch and Morgan Stanley managed
today’s sale, according to a government filing with the
Securities and Exchange Commission.

“The result was positive in general terms,” said Benito
Berber, a Latin America strategist at Nomura Holdings Inc. “The
only drawback I find is that the amount is small, which doesn’t
help when these Global TES lack liquidity.”

Investment-Grade

Colombia last year garnered an investment-grade credit
rating from Standard & Poor’s, Moody’s Investors Service and
Fitch Ratings as the economic expansion strengthened. All three
companies rate Colombia the lowest level of investment grade.
S&P last month raised its outlook on Colombia’s foreign debt
rating to positive from stable.

The Fed said yesterday it will expand holdings of long-term
securities with open-ended purchases of $40 billion of mortgage
debt a month and hold the benchmark rate near zero until at
least the middle of 2015.

The U.S. moves will create “a lot of dollar liquidity, and
this causes pressure on exchange rates,” Cardenas said,
according to an audio recording of his remarks e-mailed by the
Finance Ministry. “We will need to respond with more
intervention in the currency market and take it into account for
the central bank’s interest-rate decision.”